OCALA - With red ink flowing and sales down, could an eventual sale of firetruck manufacturer E-One by its corporate owner be possible?

At least one industry expert and an investor say yes.

E-One, once the industry leader, has fallen to third place in recent years, with market share continuing to slip. Robert Welding, president and CEO of E-One parent Federal Signal Corp., told analysts and investors during an Oct. 25 conference call that the division that includes E-One will lose $9 million to $12 million by the end of the year.

A representative of a mutual fund that holds Federal Signal stock has raised the prospect that the Oak Brook, Ill. conglomerate will have to sell E-One to satisfy investors.

Brad Evans, portfolio manager of Heartland Value Fund, said during the investor conference call that another year of poor financial performance at E-One would be "unacceptable."

On Oct. 29, in a Webcast on thestreet.com, Evans said a sale might be possible.

"It's well-documented their firetruck business is not performing," he said. "The elephant in the room for these guys is their E-One truck subsidiary. It's only 20 percent of their business. It's losing roughly $15 million to $20 million . . . They either sell it or they turn it to profitability. Frankly we think that there could be some pressure on management to act quickly to turn this division around."

Fire industry consultant Bob Barraclough, who was vice president of sales and marketing for E-One in the mid-1980s, agreed a sale was a possibility.

"It's obvious that Federal Signal doesn't know how to fix it," Barraclough said. "You close it or you sell it."

Federal Signal has given no indication of an intent to sell. David Janek, Federal Signal vice president for investor relations, said the company wouldn't comment on rumors. Spokesman John Segvich said in an e-mail last week that Federal Signal "remains committed to E-ONE's long-term success."

Walter Liptak, a Chicago-based analyst who covers Federal Signal said recently he didn't believe the company would sell E-One. The firetruck maker has long been part of Federal Signal's core businesses, he said.

E-One's troubles come in a tough market for firetruck makers. Welding said in the Oct. 25 call that the market overall was down about 20 percent. Another manufacturer, Elite Fire Apparatus, ran into financial problems that forced Montgomery County, Md. to cancel an order for 37 trucks last week after Elite delivered only one.

Yet days after Federal Signal's earnings report, Oshkosh Truck, parent company of Pierce Manufacturing, the nation's largest firetruck producer, reported gains in both sales and market share for its Fire and Emergency division.

What's Pierce doing right that E-One's doing wrong?

It's not the product. Dealers and industry experts say the machines coming out of the Ocala plant can compete with the best on the market.

The C.W. Williams Company, based in North Carolina, was an E-One dealer in the mid-Atlantic states for 16 years, selling more than 1,000 trucks. The dealership was E-One's dealer of the year in 1999 and 2001.

Dean Allred, the dealership's vice president of sales and marketing said E-One's products were second to none.

"A lot of the success of the C.W. Williams Company success was built on what (E-One) was able to produce," he said. "I'm confident the product they are building today is still an outstanding product."

With new management in 2005, E-One started to limit ways a buyer could customize each truck, Allred said.

"Our challenge was what they were willing to build and what we had to go through to get them to build it," he said.

In 2006, the dealership dropped E-One and switched to a competitor, Rosenbauer.

"It was very apparent to us they were very flexible," Allred said. "We found just the opposite of what we were dealing with (at) E-One."

E-One has lost several dealers in key areas over the past few years, including dealerships in western Canada, Ohio and Texas. The company recently appointed Ocala-based Hall-Mark Fire Apparatus as its new dealer in Texas.

"The dealer erosion problem is the most difficult problem to resolve," said C. Peter Jorgensen, editor and publisher of Fire Apparatus and Emergency Equipment Magazine. "It takes a long time for a dealer to build up relationships and trust with a customer ... The loyalty is ... between the local chiefs and the municipality and the dealer."

"You're going to have to rethink, from Oak Brook management on down, what are you going to do? Are you going to be a custom truck builder or are you going to be a Ford or Chevrolet of the firetruck world? There's not room in the industry for E-One to be a Ford or a Chevrolet."

By comparison, Pierce excels in listening to customers, Barraclough said.

"They seem to be listening to their customers a lot more than E-One or American LaFrance," he said. "They have the best sales force in the business."

Management changes and the question of a new E-One plant that ended this spring when Federal Signal decided not to accept a $26.7 million incentive package to build a new plant in Ocala also have negatively affected the company, Jorgensen said.

"The confusion and turmoil over the ... new plant, and the replacement of Marc Gustafson ... that has been very controversial and had a negative impact and genuinely sent a shock wave through the industry," he said. "With the employee changes at management level, and E-One making the decision not to build the new plant, the question of what the long-term future of E-One will be is somewhat open."

Rick Cundiff may be reached at rick.cundiff@starbanner.com or at 867-4130.

E-One's parent company, Federal Signal Corp., announced Wednesday that it has hired a banker to "evaluate strategic alternatives" and is in discussion with prospective buyers.

The announcement comes on the heels of a relatively strong quarter for E-One.

"Under [new president] Peter Guile's leadership, the E-One dealer organization has been expanded and energized, and after several difficult quarters, we are again building backlog. Domestic orders rose 5 percent in the fourth quarter at E-One, while our largest competitors have reported soft markets and significant reductions in their backlogs," the announcement indicated. "While we are encouraged by this recent momentum, we are less confident the business will achieve acceptable performance within our timeframe."

Federal Signal announced earnings per share of 17 cents for the quarter and 62 cents for the year, both above analysts' expectations. The company had record orders totaling $379 million in the fourth quarter.

Net income from continuing operations for the quarter was down sharply from the previous year, at $7.9 million, or 17 cents a share, compared with $13.1 million, or 27 cents a share, for the fourth quarter of 2006. The company blamed E-One for the drop, citing operating losses that resulted from low production rates and low order numbers in the first half of the year.

E-One is half of Federal Signal's Fire Rescue Group, which also includes Finland-based Bronto Skylift. The parent corporation doesn't report separate numbers for E-One or Bronto, but noted in Wednesday's press release that the division lost $11 million for the year due to lower sales volume at E-One.

"The increased production of Bronto aerial devices and favorable currency effects only partly offset the loss at E-One," the release noted.

Net sales for the group for the year declined 14 percent from 2006, and losses at E-One "more than offset" strong growth in Bronto sales, it continued.

Federal Signal planned to conduct a conference call with investors and analysts at 11 a.m. Wednesday, which could be accessed through the company's Web site at www.federalsignal.com. Registration was required to listen to the call.

Federal Signal looks for buyer for Ocala plant

BY RICK CUNDIFF - STAR-BANNER - 02/28/08

OCALA - Firetruck manufacturer E-One is up for sale.

E-One's parent company Federal Signal Corp. announced Wednesday that it is having discussions with prospective buyers.

"After careful consideration, our board has decided to consider strategic alternatives with respect to our E-One business," Federal Signal interim president James Goodwin said Wednesday during a conference call with investors and analysts.

"Although the business is showing positive trends from the recovery plan, we have yet to generate positive shareholder returns. Accordingly, we have engaged an investment bank to review strategic alternatives, and I am pleased to report that we have indications of interest from several potential suitors," Goodwin said.

Just the fact that Goodwin mentioned the possible sale probably means it could happen quickly, said analyst Walter Liptak, who covers the company for Chicago-based Barrington Research. The company isn't known for talking about major actions unless they're about to happen, he said.

"It sounds like it's imminent," he said. E-One could go to a truck manufacturer, such as Volvo or Navistar, but a private equity firm is a more likely buyer, Liptak said. E-One marketing coordinator Amanda Davis released a statement Wednesday about the pending sale.

"We are potentially entering a new chapter in E-One and are excited about the opportunities that new ownership brings. Companies are bought and sold every day, and we have been encouraged by the quality of companies expressing interest in E-One," the statement indicated.

The sale announcement comes on the heels of a relatively strong quarter for E-One. Federal Signal's Fire Rescue Group, which includes both E-One and Finland-based Bronto Skylift, saw orders increase by 20 percent in the quarter, with U.S. sales (primarily E-One) up 4 percent.

With new dealers in place in major markets such as Texas, January E-One sales are even stronger, up 51 percent from the same month last year, Goodwin noted.

That flies in the face of a troubled fire apparatus market that has seen small companies go out of business in the past year. Major E-One competitor American LaFrance, which built a new plant in the Charleston, S.C., area last year, filed for bankruptcy protection in January. "They're bucking the trend," Liptak said of E-One. "Their orders are growing."

"While our E-One division has struggled in the past several years, the business has been re-energized under the leadership of [E-One president] Peter Guile," Goodwin said. "Peter has worked closely with our current dealer partners as well as expanding our dealer network across North America."

Guile took over the presidency of E-One in July, replacing Marc Gustafson, who had held the post for nearly three years.

Federal Signal announced earnings per share of 17 cents for the quarter and 62 cents for the year, both above analysts' expectations. The company had record orders totaling $379 million in the fourth quarter.

Net income from continuing operations for the quarter was down sharply from the previous year, at $7.9 million, or 17 cents a share, compared with $13.1 million, or 27 cents a share, for the fourth quarter of 2006. The company blamed E-One for the drop, citing operating losses that resulted from low production rates and low order numbers in the first half of the year.

Federal Signal doesn't report separate numbers for E-One or Bronto, but noted in a press release Wednesday that the Fire Rescue Group lost $11 million for the year due to lower sales volume at E-One.

"The increased production of Bronto aerial devices and favorable currency effects only partly offset the loss at E-One," the release noted.

Net sales for the group for the year declined 14 percent from 2006, and losses at E-One "more than offset" strong growth in Bronto sales, it continued.

Bronto sales were up 50 percent for the year, and the company's entire 2008 production run is already sold, Goodwin said. The Bronto plant in Finland is undergoing an expansion that will add some 40 percent more capacity, Goodwin said in the conference call. He also made it clear the sale of E-One won't include Bronto.

Even with E-One's struggles, the Fire Rescue Group still accounts for more than a quarter of Federal Signal's $1.2 billion in net sales. The group brought in $330 million in net sales last year, and Liptak estimated E-One accounted for about two-thirds of that figure.

Wall Street apparently liked Wednesday's earnings report. Federal Signal stock closed at $12.50 a share Wednesday, a 13.6 percent increase from the day before. In comparison, Oshkosh Corp., the parent company of E-One competitor Pierce Manufacturing, closed down 1.07 percent for the day.

E-One was founded in Ocala in 1974 by Robert Wormser. Federal Signal has owned the company since 1979.

E-One, founded in Ocala in 1974, could end up in the hands of another firetruck maker. Or a heavy-duty truck manufacturer such as Volvo or Navistar. Or the company could be bought by a private equity firm seeking to maximize profits quickly.

Any of those three scenarios is possible at this point, analysts and a fire industry consultant say.

"I would expect that you're going to see a regional firetruck manufacturer that wants Federal Signal's dealer network," said Steve Barger, a research analyst with Cleveland-based KeyBanc Capital Markets. "I view private equity as less likely."

Federal Signal has owned E-One for 29 years. But when the division started consistently losing money last year, activist investors started pressuring the company's board of directors to stem the flow of red ink, Barger said.

"The segment was not losing money significantly until recently," he said. Barger called the situation a contributing factor to Federal Signal President and CEO Robert Welding's ouster in December.

Barger praised E-One president Peter Guile's work in his seven months on the job to turn around E-One and restore the dealer network.

"E-One is still a valuable brand with a good and growing dealer network, and once the operational issues are fixed, which Peter Guile is in the process of doing, I think it can return to profitability," he said.

But an E-One turnaround is still going to take time, and shareholder pressure on Federal Signal doesn't give it that time, Barger added.

Analyst Walter Liptak of Barrington Research said Wednesday that a sale to a private equity firm was a strong possibility for E-One. But Barger was more skeptical, noting that the U.S. firetruck business is more complex than private equity buyers might expect.

"Selling fire equipment is largely a relationship-driven business," he said. "You need to understand the vagaries of the dealer network and of the firetruck market itself."

Competitor American LaFrance's filing for bankruptcy protection in January also could affect who buys E-One. Patriarch Partners, a private equity company, bought American LaFrance from DaimlerChrysler in December 2005.

"Private equity firms are going to take a hard look at what the precipitating factors were for American LaFrance's bankruptcy," Barger said.

What could E-One sell for? That's a tough call, Barger said.

"Given the lack of profitability right now, it makes it very hard to set a value," he said.

Barger offered a "very rough" price estimate of 30 percent to 50 percent of E-One's sales last year. That would yield a price of about $60 million to $100 million for the company, based on sales of slightly more than $200 million.

But Barger admitted his estimate could vary by 50 percent or more in either direction.

A sale of E-One could happen quickly, Barger said.

"I would be surprised if Federal Signal still owns E-One by the start of the third quarter," he said. Federal Signal's fiscal year tracks the calendar year, meaning the company's second quarter will end June 30.

Fire industry consultant Bob Barraclough, who was E-One's vice president of sales and marketing in the mid-1980s, said E-One isn't likely to end up owned by a competitor such as Oshkosh Corp.'s Pierce brand.

"You take the top five [manufacturers] and there's nothing to be gained. . . . There's nothing they need," he said. "I don't see another company in the U.S. buying it."

Private equity firms, with a focus on short-term results, likely wouldn't gain much from E-One either, he added.

"This firetruck business is not out of the Harvard Business School," he said. "This business takes a lot of relationships, and building a following."

OCALA - Federal Signal Corp.'s Interim President and CEO James Goodwin said Friday the company is in "advanced negotiations" to sell E-One and could complete the sale by the end of this quarter.

"I'm pleased to report that we are currently in advanced negotiations with a potential buyer and may complete a sale by the second quarter of the year," Goodwin said during a conference call with investors and analysts.

"The buyer we're in discussion with right now is a financial buyer, not a strategic buyer," Goodwin said. That could mean Federal Signal is in talks with a private equity group.

During the conference call, officials said E-One's sales for the first quarter were $53.2 million. Its operating loss for the quarter was $6.2 million.

In a news release issued earlier Friday, Federal Signal reported fire truck manufacturer E-One is no longer considered part of the parent company's ongoing operations.

Federal Signal reported first quarter earnings of 9 cents per share, slightly below what analysts expected. The company reported an after-tax loss of $89 million for the quarter, based on the discontinuation of E-One and the sale of the company's last remaining parts of its Tool Group. The company announced plans to sell E-One earlier this year.

A Federal Signal press release blamed the loss on a $27.1 million loss from the sale of the tool business and a $58.4 million decline in the value of E-One.

Federal Signal reported net income from continuing operations of $4.3 million for the quarter on revenue of $228 million. The comparable figures for the first quarter of 2007 were $7.3 million in net income or 15 cents per share on revenue of $213 million.

The lower net income figure includes increases in litigation expenses of $1.9 million, $1.1 million in increased reserves resulting from a disputed contract, and $800,000 in severance and other expenses.

By 11 a.m. Friday, Federal Signal stock had dropped from a Thursday close of 14.21 to 12.89 a share.

In a separate press release on Friday, E-One President Peter Guile called the Federal Signal board's approval of an E-One sale "an important step for (E-One) and reinforces our commitment to make the transfer to new ownership expeditiously."

Guile promised that product innovation and customer service would "remain as top priorities throughout E-One's transition to another parent company."

E-One sales were up 19 percent in the first quarter of 2008 over the same period a year ago, with U.S. municipal orders up 19 percent and exports up 22 percent, according to the E-One release. The company attributed the increases to a stronger domestic dealer network offering expanded coverage, and strong international demand for airport rescue vehicles and aerial apparatus.